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2021 (7) TMI 753 - AAAR - GSTClassification of goods - rate of GST - classification based on process of manufacture (embedding coir yarn in to vinyl (PVC) compound and curing by heating / cooling) - Tufting or a process other than those processes mentioned in Heading 5701 to 5704 of the Customs Tariff and HSN Explanatory Notes to Chapter 57? - coir mats/ matting/ floor covering with vinyl (PVC) backing - covered under the description coir mats matting and floor covering ? - whether merit classification under the heading 5705 (more specifically under CTH 5705 00 49) of Chapter 57 of the 1 st Schedule to the Customs Tariff? - clarification issued by the CBEC drawback division. HELD THAT - For the purpose of GST, Classification of goods under any tariff item/sub-heading /chapter shall be done using the General rules of interpretation of the First Schedule of the Customs Tariff Act, 1975 including the Section and Chapter Notes and the General Explanatory Notes to HSN of the First Schedule of the CTA, 1975 Rule 1 of the General Rules of interpretation of tariff states that the titles of section, chapter and sub-chapter are provided for case of reference for legal purpose, classification shall be determined according to the terms of the heading or Notes do not otherwise require according to the provisions of Rule 2 and Rule 3. As per description HSN 5701 classifies Carpets and other textile floor covering, knotted whether or not mad up HSN 5702 covers woven bit non-tufted floor covering of felt not tufted or flocked; and HSN 5705 covers other carpets or mats or rugs mainly made of cotton on handloom etc. Hence it is evident from the tariff entries of chapter 57 as well as the entries of the notification that the classification and rate of tax is predominantly base upon the process of manufacture of the impugned products. Classification of the product, which is based upon the manufacturing process employed by the appellant in this case - HELD THAT - From the process and the video presentation of the manufacturing process made during hearing it is revealed that the process of manufacturing of the impugned products can correctly be termed as tufting and the products gets covered under heading 5703 in terms of the HSN explanatory note to heading 5703 as detailed above. Hence the plea of the appellant that they did not apply process if tufting is without any force and is accordingly rejected. The appellant has placed heavy reliance on the test report of Textile Committee laboratory and clarification given by Coir Board etc. it is noticed the Lab test report of the Textile committee only specifies about the identification of fibre as Pile of coir and backing with Rubber based polymer. The Lab has not considered the process of manufacture while giving their option and therefore its of no help to the appellant. Furter, the Coir Board certificate submitted by the appellant is relating to some other manufacturer. Moreover, it does not help the case of he appellant on as much as it does not give any clarification on classification with reference to Customs tariff or GST Tariff - The coir as well as PVC, chemicals fillers etc. have equal importance. Hence PVC tufted coir mats/ matting/ floor coverings cannot be classified as simple coir mats and matting as contended by the appellant. Thus, the impugned products is classifiable under heading 5703 9090 as tufted PVC backed coir carpet/mats. Applicable rate of GST - HELD THAT - If any, PVC or rubber or any other materials are backing the textile of coir fibres/ yarn by way of tufting process, which is used as floor mats or matting, it will fall appropriately under Customs Tariff Head 5703 and is liable to GST at the rate of 12% as per Sl.No. 144 of Schedule II of Notification No. 01/2017-CT (rate) dated 28-06-2017 as amended - the impugned products being tufted carpet/mat is leviable to GST @ 12% as per Sl.No. 144 of Schedule II of the said notification.
Issues Involved:
1. Classification of the manufacturing process as "Tufting" or otherwise. 2. Determination of whether the product falls under the description "coir mats, matting, and floor covering." 3. Appropriate classification under Customs Tariff Heading 5705 and applicable GST rate. Issue-wise Detailed Analysis: 1. Classification of the Manufacturing Process: The appellant sought clarity on whether embedding coir yarn into vinyl (PVC) compound and curing by heating/cooling constitutes "Tufting" as per Heading 5703 of the Customs Tariff and HSN Explanatory Notes to Chapter 57. The Authority for Advance Ruling (AAR) Kerala ruled that the manufacturing process indeed involves tufting, classifying the product under HSN 5703 90 90, attracting a GST rate of 12%. The appellant contended that the process does not involve tufting as defined by HSN Explanatory Notes, which describe tufting as inserting textile yarn into a pre-existing backing using needles and hooks. However, the Appellate Authority found that the process employed by the appellant, involving sophisticated machinery and the embedding of coir yarn into PVC, aligns with the broader definition of tufting, including the use of a tufting gun or hand methods. Therefore, the ruling that the process is tufting was upheld. 2. Description Under "Coir Mats, Matting, and Floor Covering": The appellant argued that the product should be classified as "coir mats, matting, and floor covering" under HSN 5705, as the exposed surface is coir, and it is marketed and sold as a coir product. They cited various clarifications and test reports, including those from the Central Board of Excise Customs, Coir Board, and Textile Committee, supporting the classification under HSN 5705. However, the Appellate Authority noted that the product involves significant use of PVC and other materials, making it more complex than simple coir mats. The presence of PVC backing distinguishes it from products solely made of coir. Consequently, the product cannot be classified under HSN 5705 as simple coir mats. 3. Appropriate Classification and GST Rate: The appellant claimed the product should fall under Sl.No. 219 of Schedule I of Notification No. 1/2017-CT (Rate), attracting a 5% GST rate. However, the Appellate Authority concluded that the product, being a tufted coir mat with PVC backing, is appropriately classified under HSN 5703 90 90. As per Sl.No. 144 of Schedule II of Notification No. 1/2017-CT (Rate), such products attract a 12% GST rate. The classification and applicable GST rate are based on the manufacturing process, which involves tufting and the use of PVC backing. Conclusion: The Appellate Authority upheld the AAR Kerala's decision, classifying the product under HSN 5703 90 90 and subjecting it to a 12% GST rate. The appeal was rejected, affirming that the manufacturing process constitutes tufting, and the product cannot be classified as simple coir mats under HSN 5705.
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